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A Risk-neutral Characterization of Optimization and Pessimism and its Applications

Author

Listed:
  • Osaki, Yusuke
  • Quiggin, John

Abstract

This note gives a simple, but useful characterization of optimism and pessimism represented by a convex and concave shift of probability weighting functions, and applies it to two comparative static analysis.

Suggested Citation

  • Osaki, Yusuke & Quiggin, John, 2007. "A Risk-neutral Characterization of Optimization and Pessimism and its Applications," Risk and Sustainable Management Group Working Papers 151180, University of Queensland, School of Economics.
  • Handle: RePEc:ags:uqsers:151180
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    File URL: http://purl.umn.edu/151180
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    References listed on IDEAS

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    1. Diecidue, Enrico & Wakker, Peter P, 2001. "On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-298, November.
    2. Nachman, David C., 1982. "Preservation of "more risk averse" under expectations," Journal of Economic Theory, Elsevier, vol. 28(2), pages 361-368, December.
    3. Susan Athey, 2002. "Monotone Comparative Statics under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 187-223.
    4. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    5. Schlee, Edward E, 1994. "The Preservation of Multivariate Comparative Statics in Nonexpected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 9(3), pages 257-272, December.
    6. Ryan, Matthew J., 2006. "Risk aversion in RDEU," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 675-697, September.
    7. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    8. Masamitsu Ohnishi & Yusuke Osaki, 2006. "Comparative Risk Aversion under Background Risks Revisited," Discussion Papers in Economics and Business 06-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    9. Ohnishi, Masamitsu & Osaki, Yusuke, 2006. "The comparative statics on asset prices based on bull and bear market measure," European Journal of Operational Research, Elsevier, vol. 168(2), pages 291-300, January.
    10. Quiggin, John, 1991. "Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-350, December.
    11. Hong, Chew Soo & Karni, Edi & Safra, Zvi, 1987. "Risk aversion in the theory of expected utility with rank dependent probabilities," Journal of Economic Theory, Elsevier, vol. 42(2), pages 370-381, August.
    12. repec:ebl:ecbull:v:4:y:2005:i:8:p:1-8 is not listed on IDEAS
    13. Yusuke Osaki, 2005. "Dependent Background Risks and Asset Prices," Discussion Papers in Economics and Business 05-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    14. Yusuke Osaki, 2005. "Dependent background risks and asset prices," Economics Bulletin, AccessEcon, vol. 4(8), pages 1-8.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Optimism; pessimism; rank dependent expected utility; risk–neutral decision weight; Research Methods/ Statistical Methods; Risk and Uncertainty; D81;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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